Refiner HollyFrontier doesn’t see output cuts despite weak margins

Aug 3 (Reuters) – HollyFrontier Corp said it does not expect to cut production of refined products, contrasting comments made by its rivals, who expect refiners to process less crude in response to a gasoline glut that is eroding margins.

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Crack spreads, the difference between the prices of crude oil and refined products, have narrowed sharply due to a spike in U.S. inventories of refined products.

HollyFrontier reported a lower-than-expected profit on Wednesday, hurt by weak margins.

“I don’t expect us to have economic run cuts,” Chief Executive George Damiris said on a post-earnings call.

“I think that’s going to be more of an East Coast phenomenon where the Bakken barrel doesn’t fit anymore.”

Refiners on the East Coast typically tend to have thinner margins than their rivals elsewhere, and some of them have already clipped production.

HollyFrontier, on the other hand, has historically enjoyed strong margins due to the proximity of its six refineries in the western and the central United States to prolific shale fields.

The company plans to run its six refineries up to 96 percent of their combined capacity of 467,350 barrels per day (b/d) in the third quarter, compared with 96.7 percent in the second quarter.

“I think we have good competitive position from both the crude supply and product distribution perspective,” Damiris said.

But the build up in inventories also weighed on HollyFrontier’s second-quarter gross margin, which fell to $8.88 per produced barrel, from $17.42 a year earlier.

Refiners Phillips 66 and Valero Energy Corp said last week they expect the industry to process fewer barrels of crude in the second half of the year.

Valero does not have refineries on the East Coast. Phillips 66 has one, in Linden, New Jersey.

HollyFrontier said it incurred $57 million in costs during the quarter to comply with the U.S. Environmental Protection Agency’s Renewable Fuel Standard program, which requires refiners to blend more renewable fuel, or buy paper credits.

The company posted a net loss attributable to its shareholders of $409.4 million in the quarter ended June 30, compared with net income of $360.8 million a year earlier.

HollyFrontier’s adjusted profit of 28 cents per share missed the average analyst estimate of 32 cents, according to Thomson Reuters I/B/E/S.

Sales and other revenue fell nearly 27 percent to $2.72 billion, but beat expectations of $2.42 billion.

Shares of HollyFrontier were up 1 percent at $25.80 in mid-morning trade.

(Reporting by Amrutha Gayathri and Manish Parashar in Bengaluru; Wrting by Swetha Gopinath; Editing by Maju Samuel)

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